The federal government’s enforcement efforts relating to equal pay are intensifying after President Obama’s recent announcement that the Equal Employment Opportunity Commission (EEOC) will begin to collect expanded information on pay data and hours worked from employers with 100 or more employees completing the annual EEO-1 form.

As we have previously reported on this Blog, the Obama Administration has taken unprecedented action over the past two years to increase the number of requirements imposed upon companies with federal contracts or subcontracts. These requirements have ranged from increasing the minimum wage for employees of federal contractors/subcontractors to $10.10/hour (now $10.15), new protections for LGBT workers, mandatory paid sick leave, and new regulations regarding pay transparency. Experts expected that the Administration would announce a rule for collection of pay data from federal contractors but most were floored when the President announced on January 29, 2016 that all businesses with 100 or more employees would need to provide pay data to the EEOC and the Office of Federal Contract Compliance Programs (OFCCP).

The EEO-1 report is an annual survey completed by most federal contractors and all employers with at least 100 employees. The survey requires employers to provide data on employees by job category, sex, race, and ethnicity. The EEOC announced that beginning with the report due on September 30, 2017, the EEO-1 report will be revised to include expanded information on pay data and hours worked. Pay Data will also be collated based on gender, race, and ethnicity. The new Section of the form can be found here. Per the EEOC, once the information is gathered, the data will be used to investigate discrimination complaints, identify pay discrepancies among males/females and minorities/non-minorities across various industries and job classifications, and to discover discriminatory pay practices. The Commission also intends to aggregate and publish the data in order to allow employers to evaluate their own pay practices to ensure compliance.

Secretary of Labor Thomas E. Perez said that the government cannot ensure equal pay unless it has “the best, most comprehensive information about what people earn.” We sincerely doubt that this new burden will do much to combat pay discrimination and that the information will have no practical utility in combating pay disparities. Those familiar with the EEO-1 form know that employees are divided up into 10 incredibly broad job categories. Within these broad categories, the EEOC has identified 12 pay bands for purposes of government reporting.

Comparing the W-2 wages of employees based on these broad categories, without the opportunity to demonstrate legitimate, non-discriminatory reasons or any context for pay decisions, will surely raise a red flag with the EEOC and could result in unnecessary and unproductive investigations. For example, your company might place all engineers into the “Professionals” category. If you have a female engineer who has worked for your company for 5 weeks making $129,000/year and a male engineer who has worked for your company for 5 years making $163,000/year, the EEOC’s metric will surely indicate potential gender discrimination when it is clear that no such discrimination has occurred (because the male has 5 more years of experience than the female).

If the proposed rule goes into effect, employers will need to spend hours and manpower gathering and inputting the information requested by EEOC. And without the opportunity to explain its decision-making process, employers also may be more likely to face baseless pay discrimination lawsuits. Plus, there is also a risk that data provided to the government could be obtained through a Freedom of Information Act request or hacking, resulting in the loss of a company’s competitive advantage in terms of pay.

The proposed revisions were published in the Federal Register on February 1 and interested parties have until April 1, 2016 to provide comments to DOL on the changes. Comments can be submitted electronically, in hard copy, or via fax. Contact information is included in the Federal Register.

If you choose to comment you will want to make your comments specific and concise. Believe it or not the agency will read the comments and where it deems warranted may modify its proposed rule. Often the more comments received on a particular aspect of a rule, the more the agency will consider a potential change. If you do intend to comment you may want to consider working with your local Chamber of Commerce to send a joint comment from membership. If you choose to make such a comment alone, consider citing some of the following issues:

  • As indicated above, the information the EEOC requests with regard to wages is unlikely to result in viable complaints regarding wage disparity. In fact, current wages are not the best indicator to determine whether wages may have been paid in a disparate fashion. In order to truly determine if a wage disparity is potentially discriminatory, employee skill sets and the specific job being performed need to be considered. The proposed pay collection tool does not do that.
  • Even people with the same job title may focus more heavily on one factor of the job than their colleagues. Years of service, promotions, and overtime hours worked, as well as bonuses paid, will all affect overall compensation and may serve to make the actual compensation paid appear disparate. None of these factors will be covered in the initial stages of reporting. Instead employers will be forced to submit partial information that will undoubtedly lead to false indicators of potential pay disparity. Employers will be forced to follow up with even more data to prove they are not discriminating against protected classes. All of this will take time and cost money, not to mention adding another layer of bureaucracy to government operations.

The truth is that most differences in pay are lawful and legitimate. The proposed rule is an answer to a problem that does not exist for the most part. Systems are already in place for employees to complain if they believe they are being discriminated against. We should allow those systems to work rather than sifting through exponentially large amounts of data to find a single outlier.

However, as the EEOC considers this new rule, now may be a good time for your business to conduct an attorney-client privileged compensation analysis to identify any concerns or disparities in pay before the EEOC or OFCCP knocks on your door. If you are interested in submitting comments to the EEOC regarding the proposed rule or in conducting a compensation analysis, please contact us.